Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?

46 Pages Posted: 12 Apr 2004 Last revised: 24 Apr 2022

See all articles by Severin Borenstein

Severin Borenstein

University of California, Berkeley - Economic Analysis & Policy Group; National Bureau of Economic Research (NBER)

A. Colin Cameron

University of California, Davis - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 1992

Abstract

Our empirical investigation confirms the common belief that retail gasoline prices react more quickly to increases in crude oil prices than to decreases. Nearly all of the response to a crude oil price increase shows up in the pump price within 4 weeks, while decreases are passed along gradually over 8 weeks. The asymmetry could indicate market power of some producers or distributors, or it could result from inventory adjustment costs. By analyzing price transmission at different points in the distribution chain we investigate these theories. We find that some asymmetry occurs at the level of the competitive spot market for gasoline, perhaps reflecting inventory costs. Wholesale gasoline prices, however, exhibit no asymmetry in responding to crude oil price changes, indicating that refiners who set wholesale prices are not the source of the asymmetry. The most significant asymmetry appears in the response of retail prices to wholesale price changes. We argue that this probably reflects short run market power among retail gasoline sellers.

Suggested Citation

Borenstein, Severin and Cameron, A. Colin, Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes? (August 1992). NBER Working Paper No. w4138, Available at SSRN: https://ssrn.com/abstract=294079

Severin Borenstein (Contact Author)

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States
510-642-3689 (Phone)
707-885-2508 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

A. Colin Cameron

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
125
Abstract Views
1,881
Rank
407,063
PlumX Metrics